While principally a hype or buzzword which I initially resisted using, the term "Web 2.0" has gained enough currency now that it actually has come to mean a set of more or less agreed-upon characteristics. In other words, despite its origins as an empty, vacuous, mindlessly bandied-about hype term, it has, through widespread usage over an extended period of time, come to acquire a real symbolic value and is useful for communicative purposes.
Perhaps the key element of "Web 2.0" is the extensive use of tags and tagging. Another important characteristic is the extreme valorization of aesthetics (at its worst even compromising functionality in the name of good looks) and a trend towards simplification (minimalist design, abbreviation of content, streamlining of user interfaces). These trends have become so dominant that even if you don’t particularly value them in themselves, there is considerable pressure to prioritize them in order to be seen as competitive. In this sense Web 2.0 isn’t a niche trend but a homogenizing force.
Two more characteristics worth mentioning are the proliferation of AJAX which enables more "desktop-like" web applications, and the corresponding proliferation of business models that have sprung up around providing software services in "the cloud" rather than on the desktop. The first "desktop" application to gain a foothold on the web was email — this is something that started over 10 years ago and it is now fully entrenched — but with Web 2.0 it’s now commonplace to see companies trying to sell access to all many of web-based applications that would previously have lived on the desktop (accounting apps, backup apps and so on).